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- Mar 3, 2013
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That '1929 feeling' may be back on Wall Street
World View: That '1929 Feeling' May Be Back on Wall Street
by John J. Xenakis 25 Jan 2014, 6:10 AM PDT
This week is the first time in a long time that I've thought that the market has the "1929 feeling." Those feelings only became stronger on Friday with the dramatic 2% plunge in Wall Street stocks. Financial pundits gave these reasons for the plunge:
There has been a flight from so-called "emerging markets" in the past week that turned into a full-scale rout on Friday, with Turkey, Argentina, and Ukraine being hit the hardest. This flight affected both stock markets and foreign currency markets as investors bought "safe-haven" assets, such as U.S. Treasuries, the yen, and gold.
At the global financial conference at Davos this week, there was widespread anxiety of a "hard landing" in China, meaning that China's growth may be on the verge of falling much more sharply than previously thought. In addition, there are fears of war between China and Japan.
The amount of money sloshing around the banking system is going to decrease as the Federal Reserve "tapers" its bond-buying program. It has been injecting $85 billion per month of new money into the banking system, but the amount will be lowered to $75 billion next month.
These are all likely to be long-term trends, and the sense of gloom that I'm detecting suggests that some change might be about to happen.
However, this could all fall apart in the next few days. Perhaps Wall Street will recover from the big losses this week and start growing again. We know that a crash is coming, but it's impossible to predict the timing. All we can do is guess and depend on our "feelings," which can be wrong.
By the way, according to Friday's Wall Street Journal, the S&P 500 Price/Earnings index (stock valuations) on Friday morning, January 24, was 18.20, which is lower than the 18.72 of last month but still astronomically high. It was only as recently as 1982 that the P/E index was 6, and it's about due to return to that level, as it does periodically, every 30 years or so. This would push the Dow Jones Industrial Average from its current 15,900 down to the 3,000-4,000 level or lower, which is what Generational Dynamics is predicting.
So if that "1929 feeling" is going to turn into a 1929 crash at this time, then there are some things to look for in the next two months. The main thing to look for would be a gradual net fall combined with a couple of wild fluctuations – say, a 6% fall, then an 8% rise. In fact, if you take into account what's been happening in emerging markets, then it may be fair to say that this is already happening. This would set what might be called the "panic mood," by which people would be anxious to avoid the next 6% fall, and that would trigger a much bigger fall and a spiral downward. Reuters and AFP
World View: That '1929 Feeling' May Be Back on Wall Street
by John J. Xenakis 25 Jan 2014, 6:10 AM PDT
This week is the first time in a long time that I've thought that the market has the "1929 feeling." Those feelings only became stronger on Friday with the dramatic 2% plunge in Wall Street stocks. Financial pundits gave these reasons for the plunge:
There has been a flight from so-called "emerging markets" in the past week that turned into a full-scale rout on Friday, with Turkey, Argentina, and Ukraine being hit the hardest. This flight affected both stock markets and foreign currency markets as investors bought "safe-haven" assets, such as U.S. Treasuries, the yen, and gold.
At the global financial conference at Davos this week, there was widespread anxiety of a "hard landing" in China, meaning that China's growth may be on the verge of falling much more sharply than previously thought. In addition, there are fears of war between China and Japan.
The amount of money sloshing around the banking system is going to decrease as the Federal Reserve "tapers" its bond-buying program. It has been injecting $85 billion per month of new money into the banking system, but the amount will be lowered to $75 billion next month.
These are all likely to be long-term trends, and the sense of gloom that I'm detecting suggests that some change might be about to happen.
However, this could all fall apart in the next few days. Perhaps Wall Street will recover from the big losses this week and start growing again. We know that a crash is coming, but it's impossible to predict the timing. All we can do is guess and depend on our "feelings," which can be wrong.
By the way, according to Friday's Wall Street Journal, the S&P 500 Price/Earnings index (stock valuations) on Friday morning, January 24, was 18.20, which is lower than the 18.72 of last month but still astronomically high. It was only as recently as 1982 that the P/E index was 6, and it's about due to return to that level, as it does periodically, every 30 years or so. This would push the Dow Jones Industrial Average from its current 15,900 down to the 3,000-4,000 level or lower, which is what Generational Dynamics is predicting.
So if that "1929 feeling" is going to turn into a 1929 crash at this time, then there are some things to look for in the next two months. The main thing to look for would be a gradual net fall combined with a couple of wild fluctuations – say, a 6% fall, then an 8% rise. In fact, if you take into account what's been happening in emerging markets, then it may be fair to say that this is already happening. This would set what might be called the "panic mood," by which people would be anxious to avoid the next 6% fall, and that would trigger a much bigger fall and a spiral downward. Reuters and AFP
right??
